Even experienced homebuyers can make a mistake in their next purchase. An error can cost you a lot of money or leave you with a house you cannot afford.
Whether you are buying a house for the first time or you have been buying real estate for years, here are five common errors to avoid in your next transaction.
1. Not getting preapproved for a mortgage
Being preapproved means that the lender has pulled your credit report and determined how much it is willing to loan you in a mortgage. It shows sellers that you are serious about buying and are close to getting final approval for financing. Skipping this step can make it much harder to reach an agreement with a seller.
2. Only looking at one lender
Many lenders will give you an offer after prequalifying you, which does not involve pulling your credit report so you can have it done multiple times. Different lenders might offer you different interest rates, fees, repayment terms, quality of customer service, and efficiency in processing your mortgage application.
3. Looking at houses you cannot afford
Once you have been preapproved and know what your homebuying budget is, resist the urge to look at homes listed above the price. In fact, you should consider focusing on properties that are below the preapproval number, so you have some room to negotiate with the seller. Looking at homes above your budget could cause you to try to convince yourself you can afford a property you really can’t.
4. Carrying too much debt
One of the biggest things that can hurt your ability to approved for the size of mortgage you need is a high debt-to-income ratio (DTI). This is a comparison lenders make of the debt you currently carry (car loans, credit card debt, student loans, etc.) versus your gross monthly income. As a rule of thumb, most lenders like to see a DTI of 36 percent or lower.
5. Putting all your cash into the down payment
The more you can afford to spend on the down payment, the better terms you are likely to get on your mortgage, and the more likely you will be to reach an agreement with the seller. But you also need some money to cover closing costs, moving expenses and upgrade to the new home like new paint or carpet.